{Read in 8 minutes} As a trusts and estates attorney, a lot of times people ask me, “Do I need to avoid probate?” Frequently, people have seen a recent television program with a TV personality advising them to execute Revocable Trusts or people telling them horror stories about what the probate process has done to them, but very infrequently do people actually understand what probate is. Let me tell you a little bit about what it is so that you can make a decision about what is appropriate for you and your loved ones.
First, the word “probate” is actually a verb. Probate is what the court does when it is reviewing a person’s Last Will and Testament. In New York, like most states, a piece of paper is not considered a Will until the court probates it. This means that the Court has made a determination that the person who signed the Will, whom we call the Testator, properly signed it, had the capacity to sign it, and that the Will was not the product of any fraud or undue influence by a third party. Once the court probates the Will, the court will appoint the Executor whose job it is to collect one’s assets and use it to pay bills and distribute the remaining assets to the proper beneficiaries.
Now that we know what probate is, what does it mean to avoid probate?
When one dies in New York State, their assets are divided into two piles: those that name beneficiaries and those that do not. Only the assets that do not name beneficiaries are subject to the probate process.
What’s an example of an asset that doesn’t name a beneficiary?
The bank account that is in your sole name; the house or co-op or condo that you own in your sole name. Maybe you have a life insurance policy that does name a beneficiary, but that beneficiary has died before you did and you never updated the beneficiary designation statement. That is subject to probate, and the executor of your estate would collect those assets.
What’s an example of an asset that does name a beneficiary?
There is another class of assets which do name beneficiaries, and those assets completely avoid the probate process. For example, a couple, regardless of whether they’re married or not, may own all of their bank accounts and real estate holdings jointly. These types of assets all pass automatically upon the death of one of the owners. There is no need to probate a Will.
A lot of people have avoided probate unconsciously. I think this is true of most couples: they have their home owned jointly, they own their bank account jointly, they’ve named each other as beneficiaries on retirement accounts and life insurance plans that are provided by their employer. Without opening their checkbook to pay legal fees, they have created an estate plan that’s leaving everything to each other and unconsciously avoided probate.
Interesting to note: If this married couple were to come and see an attorney in order to write a Will, what would happen when one of them died? The Will would simply sit in a drawer and collect dust. Because all of the assets pass automatically to the survivor. There is no need for the court to probate the Will of the first person to die, even if the person did bother to write a Will.
How do people make a conscious effort to avoid probate?
A lot of times avoiding probate involves creating a Trust. Trusts can be revocable or irrevocable. Most people choose to do a Revocable Trust. A Revocable Trust is a new entity that one creates to own all of one’s assets. For example, let’s say that I, Tom Sciacca, own bank accounts, real estate, stocks and bonds, things of that sort, that a lot of people tend to own. I could avoid probate by re-titling all of those bank accounts in the name of the Trust. I am transferring ownership of all of my things to this Trust.
The Trust is a contract between myself as the creator of the Trust and myself as the Trustee. During my lifetime, I’m going to continue to manage the assets of the Trust and treat them as my own. If I want money, I take money. I am not accountable to anybody else. However, upon my death, the Trust names a Successor Trustee to manage these assets in the Trust. The Successor Trustee will follow the marching orders I’ve put in my Trust that say who receives the assets when I die. This Trust is a substitute for the Will, and very, very simply, there’s no need to probate my Will, because all of my assets are owned by the Trust, and the trust names a beneficiary, much like my joint bank account or my retirement account does.
Knowing this, do we want to embrace or avoid probate?
Probate, at least in New York, is generally a very, very efficient process. It is not a very costly process, as it is in some states, like California, nor is it a very slow process, as it is in some states, like Florida. In New York, if you have an uncontested probate matter, where no one is challenging the validity of the Will, the court could possibly probate the Will in as little as 10 business days.
Sometimes there are complicating factors. People who are anticipating a Will challenge or people who have next of kin who are children, or are disabled in some way, or people who don’t know who their next of kin are, may wish to consider avoiding a more complicated probate proceeding that would result from those facts. However, in my experience, most probate proceedings are simply done by submitting papers to the court and then waiting a couple of weeks and getting a decree saying that the court has probated the Will.
What are some of the downsides to avoiding probate?
First, there’s the cost. Most attorneys charge significantly more to write a Trust than they charge to write a Will. Second, there is the administration headache involved in transferring all of your assets into the name of a Trust.
Example: Let’s say that you have a bank account that receives regularly recurring deposits. This may be Social Security, a pension, payroll, or any variety of other things. You may need to close this account and open up a new bank account in the name of the Trust with a different account number. That would involve rewiring all of those direct payments.
Another difficult thing with a Trust for New Yorkers is co-operative apartments. For people who own co-ops, the co-op board needs to approve a transfer into the Trust. They usually charge a significant amount to have their lawyers review the Trust and will require you to have another closing—and they may charge you a significant amount in closing costs. Finally, some co-op boards also require you to keep six months of maintenance in escrow in order to secure future payments of the monthly maintenance charges. This is not something that everyone can afford.
A lot of times, after the person who created the Trust has died, the Successor Trustee will still seek out legal advice on how to wind down the person’s affairs even though they are not paying probate costs—which are still minimal in New York—they are still paying more or less a similar amount of legal fees to wind down one’s affairs. Therefore, one should really closely examine whether or not to avoid or embrace probate—it’s a different decision for everybody, and it’s something that you should discuss with your trusts and estates attorney.